Retailers see strong Mac demand, little excitement over Zune

Checks with retailers in the north east indicate there is strong demand for Apple Computer's Intel Mac line leading into the holiday shopping season, with sales of its iPod digital music players also gaining traction, analysts for UBS Investment Research said Tuesday. Meanwhile, the firm's inquiries turned up "little excitement" over Microsoft's Zune digital music player, which makes its market debut today.

The checks were part UBS's monthly "Retail Rumblings" report, where analysts visit several retail stores in New York and New Jersey to focus on printer, PC/Mac and iPod activity, including on-site discussions with store managers, monthly price and inventory tracking and shelf space observations. The firm also checks company and retail websites, and conducts telephone interviews nationwide to supplement those findings.

On Apple, the Mac and the iPod

"Our checks for Apple continue to be positive for MacBooks, which could lend upside potential to our estimates for fiscal 1Q07 (ends December) and bodes well for continued share gains," analyst Ben Reitzes wrote in his report to clients, first distributed on Monday. "While Apple continues to dominate the MP3 player market in terms of share, our checks indicate that the MP3 market is a bit more subdued than last year due to general market maturation."

Still, Reitzes said he noticed some improvement in iPod nano demand as a result of the remastered aluminum models. He said initial sales of the company's second-generation iPod shuffle also appear to be solid. "While Microsofts Zune will hit stores tomorrow, our checks show little excitement around the new product and we are not expecting much of an impact to iPod sales from the new MP3 player," the analyst wrote. "In fact, initial reviews for the Zune have been far from impressive."

During his store visits this month, Reitzes said he noticed a small cardboard display at CompUSA and Office Depot featuring pictures and pamphlets about Zune. "The displays were not given prominent floor space and could not be seen when walking into the store," he said. "While we will be keeping a close eye on the impact of Zune, we do not see this product as much of a threat to Apples iPod given Apples loyal customer base, easy to use iTunes software and sleek, innovative form factors."

The analysts believes retailers are not expecting much in terms of initial demand for Zune, as is evident from their lack of promotional material around the player and their hidden displays. "We are not expecting Zune to have a meaningful impact on iPod sales," he said.

MacBook demand increasing

On the Mac front, Reitzes said demand for Apple's full notebook line is strong, with consumer interest rising not only for the company's 13-inch Core 2 Duo MacBooks, but also its 15- and 17-inch MacBook Pro models. "During our checks over the past few months, representatives at CompUSA, as well as at Apple stores, continue to see solid demand for the MacBooks, with checks this month again indicating that MacBook strength has continued beyond the peak back to school spending season, which ended in mid-September," he wrote.

The analyst noted that wait times for MacBooks recently increased to 1-3 business days from 24 hours on Apple's online store, after previously holding in the 5-7 business day range throughout the back to school season. "We continue to believe solid demand for Macs will continue into [fiscal 2007] with upgraded MacBooks and MacBook Pros both now featuring new Core 2 Duo processors, in time for the holiday season," he wrote.

Mac Pro may be the sleeper, iMacs to compel switchers

Meanwhile, Reitzes said checks with representatives from Apple's retail stores indicate that demand has been somewhat subdued for the company's new Mac Pro desktop, which was introduced in August. However, he continues to find the systems extremely compelling in terms of their power-for-price ratio.

"While we believe the new Mac Pros should help provide some support to desktop sales going forward (helping improve sales into high end 'prosumers'), we continue to believe the pickup in sales will be somewhat subdued until the release of Adobes next version of Creative Suite, which is currently scheduled to be released by Spring 2007," the analyst told clients.

"In addition, we believe new iMacs announced on September 6th should encourage switching from Windows to Mac and support estimates into calendar year-end. The new iMacs feature Intel Core 2 Duo processors including a new 24" model and a new entry price of $999 combined with increased processor speeds on Mac mini units (dual core performance at similar prices). Previous iMac products cost $1299 for the 17" model and $1699 for the 20" model."

Ultraportable Apple notebooks may further entice demand

Looking ahead to next year, Reitzes told clients that an Apple ultraportable device could further drive momentum towards the Mac platform. "As we have stated in previous reports, we believe Apple may be working on some kind of 'ultra- portable PC' or some devices that can bridge the gap between media playing, basic wireless computing needs and even some type of gaming," he wrote. "We would not be surprised to see new devices within the next year."

While the PC market is rather mature with expectations of 14 percent in 2007, Reitzes said the portable segment continues to show strong growth with 21 percent growth expected for 2006 and 28 percent expected in 2007. Furthermore, within portables, certain segments such as ultraportable PCs are likely to become a bigger piece of the market, he said, given reduced costs by PC OEMs and new market entrants such as Apple.

"We believe Apple could see much better growth and drive this category if it stripped down features, optimized the device for media playing and web surfing and used its engineering and scale to drive prices down toward the $500-$600 level," Reitzes explained. "At this price, one million units could equate to over $500 million in revenue and over $0.05 in earnings-per-share."

Leopard and Mac share growth

Touching on Apple's software segment, the analyst said he also shares some excitement about new features in Leopard that could include telephony, which could make Macs even an even more important tool in terms of communication.

Overall, Reitzes said an increased focus on Macs should drive solid near term results and lead to longer term PC market share gains, which he believes will provide significant top line benefits and earnings power for the Cupertino, Calif.-based company.

"Right now, based on the current Mac line-up we estimate that each point of PC market share equates to over $3 billion in incremental revenue for Apple considering Apples high [average selling prices] (ASPs) and high attach rates for software/peripherals etc. and estimate that the bottom line impact from each point of share would top $0.50 using incremental margin analysis," he wrote. "We assume about 2 million units equate to 1 point of worldwide share and Apples ASPs approximate $1,300. Also, we assume each 2 million Mac units for Apple generate about $1 billion in attached" revenue in terms of software, peripherals and other services."

Due to the rate in which Apple is gaining share in the PC market, Reitzes said his Mac estimates could once again prove to be conservative. For the three-month period ending December, he is estimate yearly Mac unit growth of 44 percent (12 percent quarterly) to 1.8 million units. For the entire 2007 fiscal year, the analyst is forecasting Mac unit growth of 35 percent to 7.2 million units. In fiscal 2008, he sees Mac sales rising to 8.5 million units.

"Included in our estimates is our view that Mac sales will benefit near-term from the delay of Microsofts Vista and strong acceptance of new Intel Macs," Reitzes explained. "In [fiscal 2007] and beyond we expect new software from Apple (Leopard) and Adobe (CS3) should stimulate further growth in Mac sales."

"We are also optimistic about further increases in Mac distribution through Apple retail stores and expanded relationships with Best Buy and Circuit City," the analyst continued. "Apple recently announced that its current pilot with Best Buy is progressing well and that it has recently expanded its presence in Best Buy to 50 stores, up from just 7 last quarter. In addition to Best Buy, Apple is also piloting its products within Circuit City -- about 10 stores at this time."

Yeah definetly these guys are being conservative. i think apple will probablly hit 2 million macs of the holiday QT. i think ipod demand will also be strong but not runaway. the sleeper will be whatever knockout new products they introduce at macworld like the itv video ipod or "one more thing"

In a way, this is a real treat to those of us who stuck with Apple through those "dog years". I never thought I'd see the day when WALLSTREET was clucking their tongues in favor of AAPL - wow.

As a side note Apple NEEDS to smash Adobe to pieces. I am SO sick of hearing how the MacPro sales are sluggish because of CS3! I think that Adobe is hurting Apple with this (despite the .4.8 release that really narrows the gap on rosetta performance).

Apple or someone, NEEDS to come out with a viable response to PS and AI.

Ireland - WHY is there no Apple store over there??? I just got back from a week in Dublin (I travel to Ireland from the States every year, and used to live over there) and I was amazed at how much money people are spending in Ireland. What a change from 15 years ago.
I think you have a very young population that would be Apple-centric, yet I've heard nothing about a store over there. It would look good on Grafton Street!!!
You don't live in Dublin I take it?

Do not underestimate Microsoft, folks. They deliberately put out a crappy product, pay off studios etc. and all the nonsense - so that when they release the next gen player, it would look like a major upgrade - compare with how they keep warning people about their revenues looking terrible for next quarter and then they exceed estimates - this is a ploy they successfully employed for quite a number of years.
Also, it is very easy for them to drop the price as well (a dollar more in the price of office or windows would easily mean half pricing the zune) - the downside here would be that all the likes of sandisk, creative etc. would be pummelled by the industry - while ipod sales would suffer because of that, it may not be that bad for it.
Remember Win2, Win3 and then Win95 - compare DeskView and other also ran windowing mechanisms - they are veterans at this game. Remember pathetic IE2, hopeless IE3 and then soon there was no netscape.
I think the radio on ipod would further solidify its position - currently every other player worth its salt (including the arrogant sony) has atleast an fm radio. I would see that as a major issue with the ipod. I don't understand why apple feels the need to extract another $49 dollars and supply an ugly appendage that hangs out separately from the ipod for the radio bit. Why cant they include it in - regardless of how much music, photos and video i have on the ipod, i simply want to tune into NPR sometimes and i have to run after something else. i know a lot of them differ with me but sorry guys/gals - this is my take.

Quote:

Originally Posted by SpamSandwich

Good news for Apple, but this is no time to rest on the laurels of the iPod. Despite an initial lousy product offering from MS, I expect it will gradually get better.

What's really interesting is the fact that (in terms of retail) Windows PC's still lord over the Mac, much in the way the iPod lords over Zune... neither position is guaranteed permanence.

Checks with retailers in the north east indicate there is strong demand for Apple Computer's Intel Mac line leading into the holiday shopping season, with sales of the its iPod digital music players also gaining traction, analysts for UBS Investment Research said Tuesday.

Do not underestimate Microsoft, folks. They deliberately put out a crappy product, pay off studios etc. and all the nonsense - so that when they release the next gen player, it would look like a major upgrade -

So Microsoft releases crappy products intentionally, as part of a 'master plan'. Suuuuuure they do.

Let's face it, what MS really did here was panic, FINALLY realizing that their WMA partners (Creative, SanDisk, iRiver, etc.) were NEVER going to be able to truly compete with Apple in the mp3 player space. So they ran screaming to Toshiba, repackaged the Gigabeat (in brown, no less, lol), added wireless, and hyped this half-assed rush job as their 'bold new initiative'. It is to laugh.

It is truly desperation on Microsoft's side, because now they've left their partners, Creative and all the rest, with a huge knife in their collective backsides. Analysts predict Zune will likely steal far more marketshare from MS's former WMA-format 'buddies' than it will from the iPod. Of course, if you're the CEO of one of those companies, what are you going to do? Apple isn't likely to suddenly throw open the iTunes gates to you or let you make an 'iPod family' mp3 or video player. So you're stuck with the company that backstabbed you, loathsome ol' Microsoft.

MS needed to protect WMA from becoming effectively extinct, as the iPod (and pirate sites) have made AAC/MP4 and MP3 the de facto standard. They won't succeed in enshrining WMA as THE standard, but they can keep themselves from being entirely wiped off the map, I guess, which may be their actual, behind-closed-doors goal.

Well said. I aggree with your summary that this is microsoft panic time.

Win2, Win3 and IE were all just examples of microsoft throwing their monopolistic weight around. They could afford to put out a crappy product because they were the majority leader. Now granted ms was not the majority leader when Win2/3 came out (someone clear me up on this \ ) but EVERY version of windows since has been the same..... slightly better than absolute crap.

MS is not dominating the mp3 player market and they desire to. Their WMA format is not the standard even among DRM standards. It would not make much sense for them to put out a crappy product intentionally - since everyone is expecting them to do the same thing they've done with every other market (damn the worthless DOJ) - make a big announcement that they are "breaking" into a new market, and will dominate it within 3-5 years with a loss-leading product.

MS just looks pathetic now. And I think the timing is right for a lot of people to start jumping off the ms bandwagon.

You'll notice that all the successes you cited for MS was 10 years ago and when they controlled the desktop. If it didn't come from the factory and you couldn't afford retail distribution, you had no chance. Just look at iTunes on the PC. 10 years ago, you could never get a foothold because there was no way any PC maker would jeopardize their OEM license to bundle itunes but now, it's a 2-minute download - try it out. It's FREE - whether you buy an ipod or not, itunes is still free and it came with CD burning that the MS jukebox did not have - forcing MS to add that feature free ... or a closer example - WMA's - MS thought they had the market locked up - signing up studios, record labels and manufacturers - their game plan of 1992 but even 2000 was not 1992. Consumers refused to go along - first downloading millions of copies of napster and billions of their prefered format - mp3. Before itunes launched, there was about 20 online WMA stores and what, 100 companies selling WMA DAP's? But extend and embrace means nothing in the age of the internet ... because the internet is the milky way - there is no end point ... consumers decide what they want and when - same with Beta vs VHS, DVD vs laserdisc, DVD versus Blu-Ray, etc ... Consumers decide.

In a way, this is a real treat to those of us who stuck with Apple through those "dog years". I never thought I'd see the day when WALLSTREET was clucking their tongues in favor of AAPL - wow.

As a side note Apple NEEDS to smash Adobe to pieces. I am SO sick of hearing how the MacPro sales are sluggish because of CS3! I think that Adobe is hurting Apple with this (despite the .4.8 release that really narrows the gap on rosetta performance).

Apple or someone, NEEDS to come out with a viable response to PS and AI.

I HEAR you, I've been with Apple since 87 and these are good times.
Yeah what's with Adobe, who do they think they are, the only ones on the block? [sarcasm]
I wish Apple would have bought Macromedia instead of Adobe. I prefer Freehand anyhow and Dreamweaver has more marketshare then GoLive even though I like GoLive. Then Apple could have taken GIMP, or something similar, and made it equivalent to PS. Apple could load this equivalent CS suite onto all Mac Pros like what they do with iLife. I'm sick of Adobe's stranglehold with PS.

MS just looks pathetic now. And I think the timing is right for a lot of people to start jumping off the ms bandwagon.

It's about time for the common man to finally end their relationship with MS and it's IT fanboys. I have helped more and more people switch to the Mac then ever before. People are really tiring of MS's crap.

As hard as I have tried to get my parents and uncles to switch to Mac (because i'm sick of telling them, "I don't do MS support"), they are content with having half functioning machines, over trying something new.
I think we need to factor in the baby boomer generation, and even the older Gen X equation. Older people don't like new things. It's absolutely terrifying for them to leave the MS platform, because it's what they learned on, what they worked on, and what they know.

Yes guys, Stockholm syndrom is alive and well in the computer market.

It will be the younger generation who are so familiar with computer technology, that will ultimately decide the fate of Apple. They are not frightened to death of trying something different.
Sure, my dad will eventually be on an Apple, but that will be when he's 80, and no longer able to afford computer luxuries. Then... then he will know the joy that is Apple.

I have one thing to say:
When these analysets predict doom about apple, many say that they are always wrong and never know what they are taklkng about, but when they predict sucess, we all cheer them like the Second Coming. Let's face it guys, should their predictions really suprise us? As long as Steve is at the helm, apple can't go wrong, so I would just ignore the analysists, no matter what they say

I don't understand it either - my whole family (age range 30-80) is windows and they are ALWAYS having trouble - ALWAYS asking for help, and I keep telling them (nicely ) that they could have 90% fewer problems by switching over - they don't use windows-centric software at work, they know that Office comes on Mac... I'm baffled.

I don't understand it either - my whole family (age range 30-80) is windows and they are ALWAYS having trouble - ALWAYS asking for help, and I keep telling them (nicely ) that they could have 90% fewer problems by switching over - they don't use windows-centric software at work, they know that Office comes on Mac... I'm baffled.

Well, the sad thing is that, even though its nowhere NEAR as bad as it used to be, Apple is still scaring away a lot of potential customers on price.

Folks still look at Mac prices and go, "Yup, I guess I'm stuck with Windows, so I better learn to live with it." And they do. \

Looking ahead to next year, Reitzes told clients that an Apple ultraportable device could further drive momentum towards the Mac platform. "As we have stated in previous reports, we believe Apple may be working on some kind of 'ultra- portable PC' or some devices that can bridge the gap between media playing, basic wireless computing needs and even some type of gaming," he wrote. "We would not be surprised to see new devices within the next year."

"We believe Apple could see much better growth and drive this category if it stripped down features, optimized the device for media playing and web surfing and used its engineering and scale to drive prices down toward the $500-$600 level," Reitzes explained. "At this price, one million units could equate to over $500 million in revenue and over $0.05 in earnings-per-share."

I'd buy it.

Quote:

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